Investing with a Self-Directed IRA

Key Takeaways:

• Investing in Short Notes through a self-directed IRA offers a powerful way to diversify your financial portfolio with high-yield, collateral-backed real estate loans.
• Self-directed IRAs provide investors with greater control and flexibility, allowing for investments in alternative assets like real estate, cryptocurrencies, and precious metals.
• Experienced investors are more suited for the self-directed IRA.

Short Notes and the Self-Directed Retirement Account

Diversification is the foundation of building a resilient financial portfolio. By balancing a mix of traditional investments like stocks and bonds with alternatives such as Short Notes, precious metals, and IRAs (Individual Retirement Accounts), investors can better protect their assets against market volatility. 

One effective way of achieving this balance is through a self-directed retirement account (SDIRA), which offers flexibility, access to a broader range of investments, and tax benefits.

To help you explore these opportunities, Connect Invest teamed up with trusted custodian Preferred Trust, hosting a webinar on how to maximize your retirement savings by investing in Short Notes with a SDIRA. 

Our webinar with Preferred Trust is now available to watch on-demand. To learn more insights into self-directing your retirement account and the potential of alternatives, watch now!

What is a Self-Directed IRA?

An IRA is a tax-advantaged savings plan that helps people save for their retirement. Standard IRAs are managed by custodians, teams of financial professionals, who help individuals navigate retirement savings by selecting the best investments for their financial goals.

With a self-directed IRA, the individual uses their personal knowledge and experience to identify high-yield investments and incorporate them into their portfolio. The individual is responsible for selecting investments that fit their financial goals. When self-directing your IRA, you must research niche opportunities and explore investment options like real estate, digital currency, clean energy, oil & gas, agriculture, precious metals, and more. By personally managing your IRA, you’re opening the door to a wide array of high-yield alternative assets, potentially boosting your retirement portfolio through tax-deferred growth.

Diversifying your retirement portfolio beyond traditional investments is a strategic way to reduce risk, increase stability, and potentially boost returns. Alternative assets have the potential to, or have historically proven to, outperform traditional investments like stocks, bonds, and mutual funds. With their low correlation to the broader market, these assets can serve as a valuable buffer during economic downturns.

IRS Code compiled a list of assets that are not permitted to be invested into by an IRA, whether that be managed by a custodian or self-directed: collectives (i.e. rugs, antiques, art, alcoholic beverages), as well as life insurance contracts and Subchapter S corporations.

Traditional vs. Roth Self-Directed IRA

Self-directed IRAs, whether traditional or Roth, provide tax benefits. With a traditional self-directed IRA, contributions may be tax-deductible, but withdrawals are generally taxed as ordinary income. In contrast, with a Roth self-directed IRA, withdrawals and distributions are tax-free, though contributions do not qualify for tax deductions.

Advantages of Self-Directing Your IRA

Investing with a self-directed IRA offers several key benefits:

• Control and Flexibility: You have the freedom to choose from a wide range of investments, not just CDs or mutual funds.
• Alignment with Interests and Expertise: You can select investments that match your passions, knowledge, and experience, making the process more engaging.
• Diversification: A varied portfolio can help safeguard your finances during market volatility, as different asset classes are less likely to be affected by downturns simultaneously.
• Potential for Higher Returns: You can invest in assets with greater appreciation potential.
• Tax Advantages: Enjoy tax breaks on the earnings generated by your investments.

Potential Disadvantages of Self-Directing Your IRA

While self-directed IRAs offer many benefits, there are also some notable drawbacks:

• Investment Risks: Investing always carries risk, and it's crucial for investors to understand both the risks associated with their specific investment choices and their personal risk tolerance.
• Time-Consuming Research: The responsibility of conducting thorough research falls entirely on you, the investor, which can be time-intensive.
• Investment Limitations: Certain investments are restricted, limiting your options.
• Fees: The most significant disadvantage is the associated fees. For example, Connect Invest is considered a crowdfunding source, which entails a $200 annual fee for using crowdfunding investments through Preferred Trust Company and a $50 fee for each Short Note activated. These fees could potentially offset the interest earned from the investment, making self-directed IRAs more suitable for those with larger capital to invest.

Who is the Ideal Self-Directed IRA Investor?

Investors who like to be very involved with their investments are a good fit for self-directed IRAs. A certain level of expertise is also recommended because investors are expected to direct many of the account decisions which include managing transactions, completing paperwork, and communicating instructions. Self-directed IRA investors are also encouraged to be well-versed in the asset classes of their chosen investments.

Preferred Trust Company

As a self-directed IRA custodian, Preferred Trust enables individuals to break free of conventional investing, direct their retirement strategies, and grow tax-protected retirement wealth through self-directed alternative investments. An alternative investment is anything that is NOT a publicly traded stock, bond, or security.

With a self-directed IRA, you can use your knowledge and experience to identify high-yield investments, take advantage of niche opportunities, and explore investment options like real estate, digital currency, clean energy, oil and gas, agriculture, private placements, precious metals, and more. Or you can be the bank, providing private money loans and earning interest on loaned funds. A self-directed IRA can open the door to a wide array of high-yield alternative assets, provide a way to diversify your retirement portfolio, and potentially increase investment returns through tax-deferred growth.

Christina Trembly, Director of Operations at Preferred Trust, is dedicated to informing investors of the benefits of self-directing your IRA. She explains, “Self-directed IRAs are a powerful tool for retirement that most Americans have not been exposed to. They have huge advantages that most financial advisors don’t talk about. We’re here to help you use that tool so that you can live the life you want in your retirement years.”

Investing in Real Estate with a Self-Directed IRA

Are you interested in exploring alternative investments with a self-directed IRA? Connect Invest and Preferred Trust hosted a webinar helping to guide investors on how to invest in Short Notes with a self-directed IRA (SDIRA). 

Connect Invest Short Notes provide high-yield, short-term real estate investment opportunities with annual returns up to 9.0%. The Short Note Portfolio exclusively partially funds professionally vetted, first-position, collateral-backed projects across 14 states and 36 cities. 

Final Thoughts

The self-directed IRA certainly holds potential for investors seeking alternative investments and who possess the experience and expertise to manage account details.

Historically, real estate has been considered a favorable investment because it appreciates, provides cash flow, builds equity, and is a tangible asset. Connect Invest Short Notes are an excellent route to diversify your portfolio without shouldering the burdens of direct property ownership. 

Are you interested in learning more about Connect Invest Short Notes and Preferred Trust Company’s self-directed IRAs? Watch our collaborative webinar now!